It’s no surprise that the PPP loan program was the most talked about topic at NAGGL. No surprise? You bet. Servicing & Liquidation of PPP Loans had us all looking for guidance.

A little background. SBA Notice 5000-20038 reminds us that we’re to service loans in accordance with SBA 50 57 2 and must continue to service PPP loans after the loan forgiveness decision is made. So let’s talk about servicing and liquidation. Our lenders are all seeing borrowers file for bankruptcy, many filing without pursuing forgiveness of the PPP loan. No guidance? Again, no surprise. So in absence of guidance specific to PPP loans, I’m turning to SBA SOP 50 57 2.

What’s a lender to do? Some guidance from the SOP:

  • Consider the status of the borrower’s forgiveness application. The borrower would benefit by applying for forgiveness because it would reduce the amount of their unsecured debt in the bankruptcy.
  • Transfer the loan to liquidation status on eTran.
  • Notify the assigned Loan Servicing Center of the bankruptcy.
  • Review the filing and schedules to determine if there is any information that doesn’t match the Borrower Forgiveness Application. Important: If you suspect fraud, email the OIG Hotline or call 800.767.0385.
  • File your unsecured creditor claim with the bankruptcy court. just as you would with a regular 7(a) loan and any subsequent actions necessary to protect the lender’s position in the proceedings. Then monitor the bankruptcy.

Important. Save all documents so you’ll have them for the PPP Repurchase Tabs, if /when there are tabs. We aren’t sure what format SBA will use, but we hope they will be similar to the repurchase tabs we’re familiar with.

As always, we’re here to help you navigate these choppy waters. Stay. Positive. Stay. Safe.

Warm Thanksgiving wishes from all of us at JRB.

Rebecca Mendoza
Senior Associate